January 3, 2023

Insurance Considerations as Americans Work Past Retirement Age

Americans are eligible to sign up for Medicare when they turn 65, but more of us are staying in the workforce longer than ever before. In fact, the average retirement age has increased three years in the last three decades.

There are a number of issues that Medicare-eligible workers face that your human resources staff may be asked about, such as:

  • Penalties for late Medicare enrollment,
  • Whether the employer plan is the primary or secondary payer of claims, and
  • How Medicare eligibility affects health savings accounts.

The following are considerations for employers faced with workers nearing 65.

Discontinuing group health coverage

If you plan to discontinue coverage for employees who are turning 65, you should communicate with them well ahead of the time they need to sign up for Medicare.

It’s important they understand that they will be dropped from your group health plan and that they have a seven-month window to sign up for Medicare (during the three months prior to the month they turn 65, the month they turn 65, and the three months after turning 65).

If they fail to sign up during this time, they will face a mandatory 10% penalty on all future Medicare Part B premiums for every year they are late in signing up.

Keeping them on the group plan

If you decide to keep them on the company’s plan, how you handle their insurance depends on your size:

Fewer than 20 employees — Employees who work for these firms will need to enroll in Medicare when they turn 65. Medicare will be the primary payer of health insurance claims for these workers under the law.

The group health insurance is the secondary payer.

How it works:

Let’s say your employee has foot surgery:

  • Medicare pays first up to the limits of its coverage.
  • The group health insurance only pays if there are costs Medicare didn’t cover.

20 or more employees — If your organization has with 20 or more workers, the group plan will be the primary coverage as long as they are actively employed. These employees can generally delay signing up for Medicare Part B. They will also not be subject to penalties for not signing up when they turn 65.

That said, workers who are still on your plan should sign up for Original Medicare Part A (hospital insurance) when they are first eligible. Medicare Part A, which is premium-free, provides secondary coverage of hospital expenses that may not be covered by your group plan.

Once they stop working and are no longer on the company’s health plan, your employees have eight months to sign up for Medicare Part B. They can at that time opt for Original Medicare, Medicare Advantage or a Medicare supplement plan.

If they fail to sign up for Medicare Part B after eight months of losing their employer coverage, they will be subject to a premium penalty for the rest of their lives.

Ideally, workers should enroll in Part B at least a month before they stop working or their coverage ends, so they don’t have a gap in coverage.

Health savings accounts

If your firm has fewer than 20 employees, workers who are 65 or older can no longer contribute to an HSA as they are not compatible with Medicare.

At larger organizations where the employer’s health plan is the primary coverage, employees enrolled in an HSA-compatible, high-deductible health plan can delay enrolling in Medicare and continue contributing funds to their HSA.

Employees who are 65 or older should stop making contributions to their HSA six months before they enroll in Medicare or before they apply for Social Security benefits if they are still working. That’s because people who apply for Social Security benefits are automatically enrolled in Medicare.

Those who fail to stop making HSA contributions in that period may face tax penalties.

December 30, 2022

Employers Prioritizing Enhanced Benefits in New Year, Not Cost-Cutting

Despite group health insurance costs expected to rise 5.4% this year, the tight labor market is forcing employers to prioritize enhancing benefits over cost-cutting measures, according to a new report by Mercer.

With Americans increasingly struggling to pay their health care bills, more employers are shying away from only offering their workers high-deductible health plans (HDHPs) that reduce premiums up front for higher out-of-pocket costs for workers.

Also, with mental health a top concern for workers, employers are seeking out benefits and plans that include virtual mental health services to make it easier to access care.

The expected health insurance cost growth of 5.4% is still less than general inflation, which was averaging just a tad below 8% in 2022. Because of high inflation, employers should be prepared for continued accelerated cost growth in 2024 and beyond, according to Mercer.

What employers are doing

With the tight labor market and health insurance benefits high on employees’ demands, employers are focusing on:

  • Enhancing benefits to improve attraction and retention (84% of large employers cited this as “important” or “very important”).
  • Adding programs/services to expand access to behavioral health care and mental health services (73% said this was important or very important).
  • Improving health care affordability (68%).
  • Enhancing benefits/resources to support women’s reproductive health (55%).

That’s not to say that employers are not concerned about costs. Instead, they are tackling it in different ways than in the past.

“Given the focus on affordability, it is not surprising that, despite expectations of higher healthcare costs, most leaders are avoiding ‘healthcare cost shifting,’ or giving plan members more responsibility for the cost of health services through higher deductibles or copays,” Mercer wrote.

It added that there was little change in the median amount of these cost-sharing features in 2022.

Prior to the COVID-19 pandemic, employers were shifting workers to HDHPs to reduce their costs, but while employees enjoy lower premiums with these plans, if they need care they will pay more out of pocket.

Mercer found that fewer large employers are offering only HDHPs than in past years. Very large organizations (20,000 or more employees) had been adopting these plans with gusto until 2018, when 22% of them offered an HDHP as the only option for their employees. That fell to 13% in 2021 and was only 9% in 2022.

Instead, more employers were using salary-based premiums in 2022 (34%, up from 29% in 2021). Under these arrangements, lower-wage workers have smaller paycheck deductions for health coverage than those with higher salaries.

Cost-cutting

Employers are instead looking at other ways to cut costs for themselves and their employees. The Mercer study found that:

  • 35% of large employers are steering employees to high-performing provider networks and other sources of high-value care.
  • 36% of large employers offer telephonic navigation and advocacy service to help members find the right provider based on quality and cost.
  • 17 % offer digital navigation.
  • 24% are focusing on managing costs of specialty drugs.
  • 23% are working with their carriers and pharmacy benefits managers on cost and clinical management strategies. 
December 22, 2022

More Providers Charging for Some Health Portal Services

As more health services are being rendered through providers’ patient portals and telemedicine, some providers are starting to bill for some of those interactions.

A number of health systems around the country have started billing for certain types of messages, largely ones that are involved in clinical assessments or medical history reviews that take more than five minutes. Those costs will be passed on to health plan enrollees — likely in the form of copays or coinsurance — and insurers.

Online and app-based portals have become increasingly popular, particularly since the onset of the COVID-19 pandemic, as more people grow accustomed to not seeing their doctor face to face for every visit. Often these portals will allow the health plan enrollee to ask their care team questions, and that’s when providers say they are not being paid for their time.

Is a new trend starting?

Patient portals were seeing little usage prior to the pandemic, which spurred demand as patients and providers needed a solution that didn’t require in-person interactions. Studies have shown that more than 80% of patients used telehealth at least once since the start of the pandemic, up from about 10% prior to 2020.

These portals also sometimes obviated the need even for a tele-visit with a doctor and opened the door for patients to message their doctor directly.

The issue recently came to the fore when Cleveland Clinic and a handful of other medical centers started charging for this service. 

Cleveland Clinic in November 2022 said it would start billing patients’ insurance companies for messages requiring at least five minutes of health care providers’ time to answer.

What will it cost?

Sending messages could cost as much as $50 per message depending on the time and skill necessary to answer the request. According to the announcement, people with individual or employer-sponsored group health insurance may be billed an average of $33 to $50 for each message taking more than five minutes. 

In announcing the new charges, Cleveland Clinic wrote: “Over the last few years, virtual options have played a bigger role in our lives. And since 2019, the amount of messages providers have been answering has doubled.”

According to a report in Becker’s Health IT, seven more large health systems around the country have also started billing for some patient portal services: Northshore University Health System in Evanston, Illinois; Northwestern Medicine in Chicago; Chicago-based Lurie’s Children’s Hospital; San Francisco-based UCSF Health; Renton, Washington-based Providence; and UW Medicine and Fred Hutch Cancer Center, which both have their headquarters in Seattle.

These hospitals say they will only bill for certain messages, such as those concerning:

  • Changes to a patient’s medications.
  • New symptoms the patient may be experiencing.
  • Changes to a long-term condition.
  • Check-ups on long-term condition care.
  • Requests to complete medical forms.

Messages may provide information on a treatment plan or recommend that the patient get a test done or schedule an appointment with a specialist. Doctors may often refer to the patient’s medical history and review their records for these communications, for example.

The providers say that other services on portals will remain free, such as:

  • Scheduling appointments.
  • Getting a prescription refilled.
  • Asking a question that leads to an appointment.
  • Asking a question about an issue the patient saw their provider for recently.
  • Checking in as a part of follow-up care after a procedure, such as a colonoscopy.
  • A patient giving a quick update to their doctor.

Experts predict that as more health services gravitate towards providers’ portals, hospitals and doctors will look to generate revenue from these services.

December 15, 2022

New Law Yields Results, Prevents 9 Million Surprise Medical Bills

As many as 9 million surprise medical bills have been prevented since January 2022 due to the impact of the No Surprises Act, according to a new report.

This is the first data that indicates the law, aimed at eliminating surprise medical billing for insured patients getting emergency treatment, is working. The number of claims subject to protections of the law have far exceeded the federal government’s initial prediction, the report by AHIP Health Policy & Markets Forum and the Blue Cross Blue Shield Association found.

If you have not made your employees aware of this groundbreaking law, you should, as Americans are tagged with billions of dollars a year in surprise bills when they go out of network, even if they don’t know it.

Often these bills come after going to an in-network hospital but either the doctor, the lab or the anesthesiologist were out of network.

Surprise billing is also common in medical emergencies, when an ambulance takes a patient to the closest ER – and frequently at a hospital that’s not in the patient’s network. The patient is normally in no condition to check his or her plan for in-network providers.

The No Surprises Act

Beginning on Jan. 1, 2022, the No Surprises Act banned surprise medical billing in most instances. The purpose of the law was to reduce surprise medical billing for insured patients receiving emergency treatment.

However, the law provides patients additional rights in some non-emergency situations, as well.

To help control your employees’ medical costs, it’s a good idea for plan sponsors to make sure workers and their families understand how the law works, so they can assert their rights under the act.

Emergency services

The act prohibits in-network hospitals and other providers from billing patients for any out-of-network charges for emergency services. The most the in-network provider can bill the patient for is their plan’s maximum in­-network cost-sharing amounts.

So, if a patient is admitted to the ER and they must have an emergency surgery, and the surgeon or anesthesiologist is out of network, the hospital cannot bill the patient any more than they would have billed them had the surgeon or anesthesiologist been in the plan’s network.

Patients must still pay their deductible, copays and co-insurance amounts.

Providers cannot bill patients with insurance for anything beyond that.

Uninsured patients

Patients who are uninsured, or who are self-paying for care scheduled in advance (i.e., non-emergency care), are entitled to a “good faith estimate” from their providers.

If the patient gets a bill for anything more than that estimate, plus $400, they have 120 days from receipt to contest the bill.

Waiving rights

Some providers may ask your employees to sign a document that waives their rights under the law. However, the No Surprises Act prohibits waivers for any of these services:

  • Emergency care
  • Unforeseen urgent medical needs during non-emergency care
  • Ancillary services
  • Hospitalist charges
  • Assistant surgeon charges
  • Out-of-network provider services when no in-network alternative is available
  • Diagnostic services.

Key points for covered employees

  • You are not required to waive your rights under the No Surprises Act.
  • You are not required to use out-of-network providers. You can seek non-emergency care in-network.
  • Your plan must cover emergency services without requiring preauthorization.
  • Your plan must cover emergency services by out-of-network providers.
  • Your plan must apply any amounts you pay for emergency or out-of-network services towards your deductible and out-of-pocket limits.

If you’ve been wrongly sent a surprise medical bill, visit https://www.cms.gov/nosurprises.

December 6, 2022

Premium Reimbursement Plans Grow in Usage, Despite Drawbacks

More employers are opting to fund accounts that their employees can draw on to purchase their own health insurance, either on an Affordable Care Act exchange or on the open individual market, according to a new report.

Individual Coverage Health Reimbursement Arrangements (ICHRAs) offer employees a set budget for premiums, allowing them to pick the health care plan that works best for them.

Some companies have been exploring these arrangements in lieu of providing their group health benefits, in order to save money and reduce the administrative burden, according to the “2022 ICHRA Report” by PeopleKeep, a human resources software company.

The average amount employers funded ICHRAs with was $981 per employee in the year ended June 30, 2022, according to the report. That is twice as much that’s needed to purchase the average lowest-cost gold plan on the marketplace.

But these plans have their drawbacks and are not for all employers. So, it’s important to understand how they work and their limitations.

The ICHRA explained

ICHRAs, created by regulations promulgated by the IRS in 2019, allow employers subject to ACA coverage requirements to forgo purchasing insurance for employees and instead provide extra funds for them to purchase their own health insurance coverage. Here are some ICHRA basics:

  • Regulations allow for employers to offer ICHRAs to some of their employees, and group health benefits to others.
  • Some accounts are restricted to reimbursing only for health insurance premiums, while others also reimburse for out-of-pocket medical expenses. Unspent funds can be saved over the course of the pay period for expenses in the calendar year.
  • Every pay period, the employer will fund the account with a set amount over the course of the year. The employee will pay for their premiums and get reimbursed by showing proof of payment.
  • Employees don’t pay taxes on health care spending reimbursed through the ICHRA.
  • Accounts are not portable when employment ends.
  • For applicable large employers subject to the ACA employer mandate, the ICHRA funding must meet the ACA’s coverage and affordability requirements and be enough to purchase the lowest-cost silver plan on the marketplace.
  • There is no limit on how much an employer can fund the account with.

Not a good fit for all firms

There are many restrictions to ICHRAs as well as drawbacks which employers need to consider:

  • The employee loses the employer-sponsored coverage they’re accustomed to and has to fend for themselves to find coverage that fits within the budget their employer provides. This could cause employee resentment.
  • Offering group health plans to salaried employees and higher-wage staff and ICHRAs to lower-wage workers, who may view it as a two-tier system, could again cause resentment.
  • Having an ICHRA could affect recruitment efforts and retention, as most workers have grown accustomed to their group health benefits.
  • Employees may choose plans that leave them with either higher premiums than they’d pay for a group plan, or higher out-of-pocket expenses on the back end.
  • Employees must use the funds to purchase health insurance and they may not be enrolled in their spouse’s health plan.
  • If your ICHRA is considered affordable according to ACA rules, employees lose the premium tax credit if they opt out of the ICHRA. If your ICHRA is considered unaffordable under ACA rules, they can claim the premium tax credit and waive their right to the ICHRA.

Businesses most suited for ICHRAs

These plans often work best for operations that have:

  • High staff turnover.
  • A large number of lower-paid workers.
  • A mix of salaried and hourly workers.
  • A mix of employees at the company site and remote workers in other regions.

The takeaway

Sticking with a traditional group health plan can help you with recruitment and retention, but for some employers who look to attract workers who do not put a priority on employee benefits, these types of plans could be a good fit.

Making a move to one of these plans takes careful consideration and planning. We can help you sort through the facts and fiction about these accounts.

November 30, 2022

Narrow Networks, Tiered Plans May Reduce Costs

Inflation, an aging workforce and people catching up on care they skipped during the COVID-19 pandemic are some of the main ingredients that will drive the cost of group health benefits over the coming years.

The key for employers grappling with these higher costs is how they can reduce their impact by switching up plan offerings and choosing plans that do a good job of managing specialty drug costs, which have been spiraling over the last decade.

Health spending dropped considerably in 2020 and 2021 as people stayed away from health care environments, but now people are back seeking care that was delayed. That’s caused a sudden spike in claims for health plans across the board.

Also, more health plans have boosted their mental health offerings, which patients have been taking advantage of, leading to further outlays, according to a recent report by Marsh McLennan Agency.

While there is not much employers can do about rising premiums, a combination of measures could help businesses defray cost increases in the near term.

Compare insurance plans and providers

If you’ve been offering the same plans every year, we can work with you to compare providers to see if there are better deals for you among their competitors.

Also, plans can vary greatly among insurance plans and each insurer will have different deals to offer. Even your current slate of insurers may have plans that you are not offering.

We can help you cut through the noise and find plans that may be a better fit for your organization.

It is important to keep in mind that a lower premium does not mean it’s the best deal. Some lower-cost plans may have narrower networks, which could result in some employees losing access to their regular doctors.

That said, there’s been a trend towards so-called “high-performance,” narrow provider networks that aim to reduce costs while maintaining efficiencies and quality of care.

Other cost-saving measures

Insurance carriers have been trying out new approaches to controlling costs, while improving health outcomes for their plan enrollees. Money spent up front on quality health services can yield future savings if the patient needs less treatment.

Some insurers and self-insured employers have been able to generate savings of 5 to 15% by employing:

Tiered networks — These health plans sort providers into tiers based on their cost and, often, quality relative to other similar providers who treat comparable patients. Providers with higher quality and lower cost are typically given the most-preferred tier rankings.

Centers of excellence — Many self-insured employers and more health plans are also contracting with “centers of excellence.” While there is no specific definition of a COE, these providers deliver positive patient outcomes, lower costs, raise member engagement and have high rates of patient satisfaction.

Often, an OEC may have a specialty, like a chronic disease or a specific service such as radiology. Working in tandem with a clinical analytics vendor, payers will connect members with health systems that demonstrate high performance in these areas.

Referral management — More health plans are also starting to use referral management software to improve efficiency and trust in care coordination.

These systems synchronize patient data transmission from one physician to another, and also to the patient. A referral management system aims to facilitate good communication between the consultant, specialist, health care provider and the patient.

The system increases trustworthiness and transparency of treatment and diagnosis, and decreases inefficiency in care coordination and operational arrangements.

The above measures can be applied across the care continuum — hospitals, primary care, specialty groups, post-acute providers and ancillary care — while maintaining access and quality of care.

The takeaway

Getting the cost equation right will be a challenge in the coming years as premiums are expected to rise at a faster clip than they have been in the last five years.

Talk to us about finding health plans that are offering different structures for addressing costs while also improving care for your workers.

November 23, 2022

Many Injured Workers Feel Unsupported, Frustrated by Claims Process

A recent study has found that injured workers are often left feeling frustrated and fending for themselves after they file a workers’ compensation claim.

The survey of injured workers by researchers at the University of Waterloo in Ontario, Canada found that workers reacted in a number of ways when experiencing “procedural” unfairness, frustration in how their claim is being handled, or poor communications from their claims adjuster or employer. Some give up, some react confrontationally, others quit.

The study confirms what other studies have shown: Employers need to be actively involved in helping workers navigate the workers’ comp system, keep in touch with them to lend assistance and provide support, including a feasible return-to-work program.

Otherwise, they risk having a disgruntled injured worker who may take longer to recover or secure the services of a lawyer. And once lawyers enter the picture, the more likely it is that their injury will drag out and the cost of the claim will increase substantially.  

The claims process can be confusing and unfair to injured workers. The amount of money they receive when they are not working and on the mend is less than their paycheck, and poor communications often leave them languishing and wondering when they can return to work.

Negative feelings

Many claimants have a number of negative emotions when embroiled in the workers’ comp claims process, including feeling:

  • Confused,
  • Angry,
  • Frustrated,
  • Unsupported,
  • Abandoned
  • Disappointed, and
  • Wary.

Others did report some positive emotions, including determination and optimism.

Issues that caused negative feelings include:

  • Uncertainty about how to access work compensation programs.
  • Reluctance to speak up about their claim for fear of losing their jobs.
  • Not receiving adequate modified work so they can return to work early.
  • Receiving inadequate medical care.
  • Their employer trying to suppress the claim.
  • Unresponsive claims adjusters.

What you can do

Throughout the recovery process, communication is the key. Maintaining contact with your employee and keeping in touch with the attending physician about available work will help reduce anxiety about returning to work.

For many workers that may mean modified work with restriction to avoid reinjury. You may also consider having them work from home, if feasible.

Encourage an injured employee to follow through with recommended care to avoid long-term complications whenever possible.

If your worker is not getting a response from their claims adjuster, offer to assist them.

Check in with your worker regularly and let them know their colleagues miss them and are hoping they’ll soon be back on the job.

November 18, 2022

Is Health Plan Self-Funding Right for Your Firm?

As group health costs continue climbing and more employees struggle with the cost of premiums and out-of-pocket expenses, some employers are starting to take a second look at self-funded, or partially self-funded plans.

These plans give employers more skin in the game and the ability to better address cost drivers and tailor their offerings to fit the needs of their employees.

But while the plans can save both employer and their workers money, they are not for every organization. Plus, there is a degree of risk as a few serious health issues among group participants can blow open claims costs.

Small employer considerations

While medium-sized and large organization are more apt to self-fund due to their resources, 21% of employers with three to 199 plan participants were self-funded in 2021, according to a study by the Kaiser Family Foundation. That’s compared to employers with:

  • 200 to 999 plan participants: 63%
  • 1,000 to 4,999 plan participants: 86%
  • 5,000 and more plan participants: 87%

Recently, insurers have been trying to address small and mid-sized employers’ concerns about risk and costs by rolling out “level-funded” plans. These vehicles provide a lower level of self-funding with a stop-loss insurance program that has lower attachment points than typical plans.

For level-funded plans, the insurer estimates the employer’s expected monthly expenses, which include:

  • A portion of the estimated annual cost for benefits,
  • The stop-loss protection premium, and
  • An administrative fee.

The employer pays the above to the insurer every month. If, at the end of the year, claims were significantly higher or lower than expected, there will be financial reconciliation between the employer and the carrier.

These level-funded plans differ from fully self-funded plans, where the employer assumes direct financial responsibility for the costs of enrollees’ medical claims. The employer will usually contract with a third party administrator or insurer to handle claims and provide administrative services for the plan.

Employers may purchase stop-loss coverage to protect against catastrophic claims.

Stop-loss basics

While these plans are called self-funded, there is still a portion of the costs that is insured to protect against catastrophic claims or unexpectedly high utilization.

There are different types of stop-loss insurance that pay the cost of claims at a certain attachment point, when plan, individual or claims spending exceeds a designated value:

Specific stop-loss coverage — This policy provides protection for the employer against a high claim on any one individual. This is protection against abnormal severity of a single claim, rather than abnormal frequency of claims in total.

Aggregate stop-loss coverage — This policy may limit the total amount the plan sponsor must pay for all claims over the plan year.

The benefits

Customization — Self-funded plans let employers customize their plan to meet the needs of their workforce.

Cost control — Self-funded plans only pay the actual costs, as opposed to fully insured plans where the premium goes towards the expected health care costs the insurer has forecast, plus its overhead, reserves, profit margin, and more.

Access to claims data — The employer gets detailed access to claims costs, so they can see what claims are driving costs. By looking at claims and plan participant needs, the employer can better decide which benefits to provide, enhance or remove if they are not being used.

Disadvantages

Compliance — Since the employer will be paying for the claims, they will be responsible for fiduciary and compliance issues.

Cash flow — The plan will need to have sufficient money going into its accounts regularly to pay for claims as they arise.

Volatility — Medical outlays can be unpredictable. A spate of high-cost claims can wipe out any potential savings.

The takeaway

If you’re fed up with rising group health plan premiums, talk to us about self-funding. We can review your current insurance arrangement and your plan costs to help you decide if it’s right for you.

November 1, 2022

How to Coax Disengaged Employees to Sign Up for Health Coverage

One of the most difficult aspects of annual open enrollment is reaching workers who are disengaged from the process and never bother signing up for your group health plan and other benefits they could take advantage of.

While employers shoot for maximum employee enrollment, there are always those employees who for a multitude of reasons never take the first step of signing up for benefits. These workers are likely going uncovered for their health insurance and risk serious outlays if they have to see a doctor or go to the emergency room.

They also miss out on preventative services that insurers are required to provide without cost-sharing and that can help them maintain their health.

This disengagement is more typical with younger workers, who may feel that the extra expense for their share of their health plan premium isn’t worth it since they are young and healthy. A recent study, the fifth annual “HSA Bank Health & Wealth Index,” noted that targeted communications to millennials and Gen Zers are key to sparking their interest.

One way to do that is by focusing on pending life events that younger-generation workers may be encountering:

Marriage and children — Employers can focus their messaging to these generations of employees by highlighting these major life milestones and the importance of having health insurance in place.

Both of these events should be a wake-up call that it’s time to get serious and purchase health insurance to either cover their spouse or impending children. Childbirth is expensive and newborns require numerous doctor’s visits and vaccinations in their first year and beyond.

Turning 26 — This is the age that individuals are no longer allowed to be covered by their parents’ health insurance. Young workers will often forgo their employer’s health plan as they are still covered by their parents’ plans.

They may not be aware that this is the cut-off age. If you have Gen Z workers, you should consider sending out e-mail blasts to them about this law and that if they are turning 26 in the coming year, they’ll need to find new coverage other than their parents’.

Health savings accounts

There is one group of employees that is more engaged in their health insurance than any other, according to the Health and Wellness Index: Those who have health savings accounts that are linked to an HSA-eligible high-deductible health plan.

Also consider that one in three employees are uncertain about their ability to cover future health care expenses. HSAs, if used properly, can provide the peace of mind and the funds to cover those costs. 

HSAs are savings accounts that allow your employees to put a portion of every paycheck into the account to bank for future medical expenses. These accounts can be kept for life and transferred to new employers. They are funded with salary that has not yet been taxed and the funds in the account can be invested, much like a 401(k) plan.

The study recommends targeting your communications to the disengaged by appealing to the traits that most HSA users have:

Spenders — This group of HSA owners will use most of the funds in their accounts to pay for qualified medical expenses.

They want information that helps them get the most bang for their buck. You can do this by sending them lists of eligible expenses and directing them to online technology that helps them get reimbursed.

Savers — This group doesn’t touch their HSA balances, even for current medical expenses. Instead, they prefer to use their account to save for future expenses, even in retirement.

They are interested in tools to track expenses not paid from their HSAs and direct deposits for self-reimbursement.

Investors — This group of employees are also savers. They seek to maximize growth of their HSAs by investing the funds to grow them even more.

They are interested in information that can help them make good investment decisions and changes. Providing them with timely advice can help them start an HSA and continue investing in it in the future.

October 25, 2022

Employees and Employers Save with Cafeteria Plans

As health care costs continue rising and employees are being asked to shoulder more of the expense burden, you can help them by offering a tax-advantaged plan that allows them to save for medical expenses.

These cafeteria plans, which are governed by Section 125 of the Internal Revenue Service Code, allow your employees to withhold a portion of their pre-tax salary to cover certain medical or childcare expenses. Employees can save an average of 30% in federal, state and local taxes on items they already pay for out of pocket.

Because these benefits are free from federal and state income taxes, an employee’s taxable income is reduced, which increases the percentage of their take-home pay. 

The plans benefit employers, as well. Since the pre-tax benefits aren’t subject to federal social security withholding taxes, employers don’t have to pay FICA or workers’ comp premiums on those payments. A cafeteria plan can save employers an average of almost $115 per participant in FICA payroll taxes.

Types of cafeteria plans

Premium-only plan: POP plans allow employees to elect to withhold a portion of their pre-tax salary to pay for their premium payments. Most companies currently have this set up through their payroll provider. A POP plan is the simplest type of Section 125 plan and requires little maintenance once it’s been set up through your payroll.

Flexible spending account: With an FSA an employee pays — on a pre-tax basis through salary reduction — for out-of-pocket medical expenses that aren’t covered by insurance (for example, annual deductibles, doctor’s office copayments, prescriptions, eyeglasses and dental costs). 

Dependent care flexible spending account: The dependent care FSA is an attractive benefit for employees who pay for childcare or long-term care for their parents. Employees may hold back as much as $5,000 annually of their pre-tax salary for dependent care expenses, which include expenses they pay while they work, look for work or attend school full-time.

How an FSA works

Before the start of the year, employees estimate how much they expect to spend on medical expenses and dependent care over the course of the year. 

Employees should be careful to not put too much into the account. (They can carry over $500 in unused funds from the prior year into the new year, but any funds in excess of that would be forfeited.) 

Whatever amount they choose to deduct for the year will be deducted on a pro-rated basis from each paycheck and deposited into their FSA. 

On or after the first day of the plan year, an employee is restricted from changing or revoking the Section 125 agreement with respect to the pre-tax premiums until the plan year has ended, unless a change in family status occurs.

Employees pay out-of-pocket expenses upfront and then submit a claim and documentation to the plan administrator. They are then reimbursed for their expense in the form of a check or account transfer.